Ramaswami, J. - (1.) This appeal is brought, by special leave, from the judgment of the Calcutta High Court dated December 5, 1962 in matter No. 78 of 1959.
(2.) Ananda Bazar Patrika Limited is a Joint Stock Company, hereinafter referred to as the 'Company', and has got an employees' Provident Fund Scheme which was being managed by a Board of Trustees. Respondent No. 1 is a Chartered Accountant and was appointed by the Board of Directors of the Company to audit the accounts of the Provident Fund for the years 1953 and 1954. It appears that in the year 1954 the Trustees of the Fund had made certain advances amounting to about Rs. 6,21,864/- to the Company in contravention of the Rules of the Fund. The Directors of the Company issued various cheques in repayment of the advance, but at the request of the management of the Company the cheques were kept with the Trustees of the Fund uncashed and not credited in the account of the Fund. After receipt of the cheques the Trustees of the Fund made book entries showing the repayment of the loan so granted to the Company, though in fact none of these cheques had been cashed when such entries were made. In his letter dated May 25, 1955 respondent No. 1 wrote to the Company as follows: "It appears that certain loans were granted by the Trustees of the Fund to the Company in l954 which although adjusted within the accounting year, does not appear to be in accordance with the Provident Fund Rules. We disapprove such transaction and believe it will not recur in future. Cheques issued by you to the Fund should also be cleared promptly." After receipt of the letter from respondent No. 1 a meeting of the Board of Trustees was held oh May 27, 1955 when a resolution was passed to the following effect: "This meeting records with regret that the cheques amounting to Rs. 6,21,864/- could not be presented to the bank on the verbal request of the management of the Ananda Bazar Patrika Ltd., this meeting considering all the relevant facts resolves that all the cheques be returned to the Company to the debit of the loan account bearing an interest of 6% per annum with effect from the date of issue of the cheques". Respondent No. 1 signed the statement of Accounts ending December 31, 1953 on May 14, 1954, and the Statement Accounts ending December 31, 1954 on June 30, 1955. The Statement was signed by the Trustees of the Fund and respondent No. 1 after signing the statement gave the following certificate: "Checked with the books and account produced and found correct." Though respondent No. 1 pointed out in his letter dated May 25, 1955 that loans were granted and adjustment was made during the accounting year, he did not disclose this fact in his note when he signed the statement of account on June 30, 1955 knowing fully well that the cheques were not only encashed but were returned to the Company in pursuance of the resolution of the Trustees dated May 27, 1955. Respondent No.1 also failed to point out in the statement of account that adjustment of loans was made by showing in a very vague manner cash in hand (Cheques and cash) as Rs. 6,21,864/- and the proportion of the cheques to the cash was not specified. Later on Kishori Lal Dutta, respondent No. 2. President of the Employees' Union filed a complaint against respondent No. 1 before the Institute of Chartered Accountants of India, hereinafter referred to as the 'Institute'. It was alleged in the complaint that (1) the loan granted to the Company was in contravention of Rule 12 of the Provident Fund Rules and the auditor failed to disclose this in the statement of account, and (2) the auditor failed to invite attention to the fact that huge amount was shown as cash in hand in the financial statement for the years 1953 and 1954 in contravention of Rule 11 of the Fund. The complaint was referred by the Council of the Institute to the Disciplinary Committee for an inquiry under S. 21 of the Chartered Accountants Act (Act 38 of 1949) , hereinafter called the 'Act', read with regulation made thereunder. The Disciplinary Committee made a report on September 13, 1958. The Disciplinary Committee found that the loans were admittedly granted by the Trustees in contravention of the Provident Fund Rules and respondent No. 1 should have brought out this fact in his report and that respondent No. 1 was guilty of not disclosing the fact that a large amount of loan was given out of the fund of the Provident Fund to the Company and that, the cheques received in payment of these loans and shown as cash In hand "Cheques and cash" were not encashed at least upto the day on which he wrote the letter to the Directors i. e., May 25, 1955 and the non-disclosure of this material information we an act of misconduct on the part of respondent No.1. The Disciplinary Committee held that the loans were given in contravention of the Rules of the Provident Fund and failure to report on the default in clearing the cheques received in repayment of the loans amounted to a failure to report on a material mis-statement known to respondent No. 1. Accordingly the Disciplinary Committee held that respondent No. 1 was guilty of misconduct under items (o) , (p) and (q) of the Schedule to the Act. The Council of the Institute agreed with the report of the Disciplinary Committee and held respondent No. 1 guilty of professional misconduct. Under S. 21 of the Act the matter was referred to the Calcutta High Court for final orders. By its judgment dated December 5, 1962 the High Court set aside the findings of the Disciplinary Committee as confirmed by the Council of the Institute and absolved respondent No. 1 of the charges of misconduct.
(3.) It is necessary at this stage to examine the scheme of the material provisions of the Act. Section 2 (1) (b) of the Act defines a "Chartered Accountant" as meaning "a person who is a member of the Institute and who is in practice". Section 6 lays down that no member of the Institute shall be entitled to practice unless he has obtained from the Council a certificate of practice. Section 8 deals with disabilities. Any person who incurs any one of the disabilities enumerated in sub-cls. (i) to (vi) of S 8 shall not be entitled to have his name entered in or borne on the Register. Sub-clause (vi) deals with the disability in cases where the chartered accountant is found on an inquiry to be guilty of conduct which renders him unfit to be a member of the Institute Under S. 20 (2) it is provided that the Council shall remove from the Register the name of any member who has been found by the High Court to have been guilty of conduct which renders him unfit to be a member of the Institute. Chapter V deals with the question of misconduct. It consists of Ss. 21 and 22. Section 21 deals with the procedure of enquiries relating to misconduct of members of the Institute. It reads thus: "21 (1) Where on receipt of information or on receipt of a complaint made to it, the Council is of opinion that any member of the Institute has been guilty of conduct which, if proved, will render him unfit to be a member of the Institute, or where a complaint against a member of the institute has been made by or on behalf of the Central Government, the Council shall cause an inquiry to be held in such manner as may be prescribed, and the finding of the Council shall be forwarded to the High Court. (2) On receipt of the finding, the High Court shall fix a date for the hearing of the case and shall cause notice of the day so fixed to be given to the member of the Institute concerned, the Council and to the Central Government, and shall afford such member, the Council and the Central Government an opportunity of being heard before orders are passed on the case. (3) The High Court may, thereafter, either pass such final orders on the case as it thinks fit or refer it back for further inquiry by the Council and upon receipt of the finding after such inquiry, deal with the case in the manner provided in sub-section (2) and pass final orders thereon. ********** Section 22 defines misconduct. It reads thus: "For the purposes of this Act, the expression 'conduct which, if proved, will render a person unfit to be a member of the Institute' shall be deemed to include any act or omission specified in the Schedule, but nothing in this section shall be construed to limit or abridge in any way the power conferred on the Council under sub-section (1) of Section 21 to inquire into the conduct of any member of the Institute under any other circumstances." Clauses (o) , (p) and (q) of the Schedule read as follows: "A chartered accountant shall be deemed to be guilty of conduct rendering him unfit to be a member of the institute. If he - (o) fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary to make the financial statement not misleading; (p) fails to report a material misstatement known to him to appear, in a financial statement with which he is concerned in a professional capacity; (q) is grossly negligent in the conduct of his professional duties:" ;